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The Risks Of Co-signing for a Bad Credit Loan
Lenders who offer bad credit loans usually require the applicant to have a co-signer. Many people who have imperfect credit history ask their friends or relatives to help them get their loans approved by co-signing the contract.
Have you been asked to co-sign for someone? If yes, have you considered the possible risks involved with being a co-signer? Are you clear about what your duties and responsibilities would be as a co-signer? What can you to protect yourself as co-signer? In this article, lets answer these questions one at a time.
Possible Risks Associated with Co-signing Co-signing a loan for another person means that you guarantee that he/she is capable of the loans repayment. With this assurance, you agree to take over the repayment obligations in the event that the primary loan holder defaults.
Unfortunately some people immediately sign-up the contract without first reviewing the Terms and Conditions or without a clear arrangement with the primary loan holder. Take note that as a co-signer, your personal credit history can be damaged in case there are problems with the loan holders repayment.
Some lending companies will only try to get in touch with the co-signer after the primary loan holder defaults. However, the damage has already been done to your own credit. You may also be taken by surprise that you are now accountable for the loan holders debts.
Some co-signers also found themselves in the middle of a messy situation. By the time you need to apply for your own loan, you may find it difficult to get an approval. Lenders may see you as a “risky” client because you are already responsible for another loan. Although, it isnt directly under your name, you are still responsible for its repayment in case of default.
On the other hand, if the lender feels that you are still capable of taking on a new loan, you may get an approval. However, if your credit rating has been pulled down due to someone elses late payments, you may not qualify for the best rates from your lender.
Thus, the best advice to remember before co-signing a loan is to treat it as if its your own. If you are not sure whether you can keep up with its repayment, then it would be safer not to co-sign the loan.
Co-signer How to Protect Your Own Credit If you are willing to co-sign, the best way you can protect your personal credit and reputation is to closely monitor the primary loan holders payments. Request the lending company to send you a copy of the monthly notices or updates so you can be immediately made aware if the loan holder falls late with the payment.
Evaluate the Terms and Conditions with the loan holder. Make sure that the person you are co-signing for is clearly aware of his/her obligations. If you have any concern, dont be afraid to discuss the matter with your friend. Make an agreement with your friend and ask him/her to talk to you about anything that concerns the repayment. After all, it is your credit and finances that is also on the line.
Being Careful With Credit Cards
When it comes to getting equipped with a credit card, many people are aware of the advantages and disadvantages, but few are aware of how to ensure that they are getting the best deal through being careful about the credit card provider they use, and ensuring they have read the terms and conditions, and are therefore aware of all the cost centers that will affect them during their contract.
Watch out for:
Annual Fees Not all credit card providers will charge an annual fee, but by the same token not all those who do charge an annual fee will necessarily be the least cost-effective. Keep in mind that different credit card providers will charge in different ways, and being away of the ways you are charged means you get the best deal, and can budget for these expenses.
Late Payment Charges Should your credit card payments be later than expected then as well as the interest still being due you will have to incur a late payment fee. This is justified by the credit card providers through the consideration that it could cause cash flow problems, and may mean that their financial planning could be off-set or not as projected. Late charges should be a consideration when costing a credit card; a great way to avoid this is to set up a direct debit so your payment is taken directly out of your bank account.
Exceeding Your Limit When you exceed your credit limit the likelihood is that you will be charged, unless you make prior arrangements with your credit card provider. You should be aware of what these charges are before you enter into a contract with a credit card provider. To avoid these costs, many choose to take out another credit card to finance clearing the limit, whilst others may look towards short-term solutions like an overdraft or long-term solutions like a bank loan. Please be careful not to spend money on a credit card unless you can afford it.
Avoid:
Small Companies Avoiding small companies can ensure that you do not come across problems that would not face well-known, reputable house-hold names. Should a company be a public limited company/listed company or be owned by such then the inherent risk of unfair contract terms and a shift away from best-practice are significantly reduced by PR factors and media pressures/influences.
High APR/0% initial APR Choosing to contract with a credit card company that offers a great introduction rate and a higher rate in the long term is relying on your lack of financial control to make money. If you are not in total control of your finances and ultimately earn less than you make then please avoid these at all costs.